17.03.2016, 06:45
Japan Display Announces Structural Reforms and the Recording of an Extraordinary Loss on Structural Reforms
OREANDA-NEWS. Japan Display Inc. ("JDI") today announced that it will implement a program of structural reforms that was approved at a meeting of the Board of Directors held on March 16. An extraordinary loss based on these reforms will be recorded in the FY 2015 (April 1, 2015 to March 31, 2016) consolidated financial accounting period.
1. Reasons for structural reform
JDI operates in the small-medium display industry. This industry, in particular the market for the company's leading product area, displays for smartphones, is becoming increasingly competitive. In addition this market is characterized by seasonal demand, which leads to extreme earnings volatility on a financial quarterly basis.
Given this situation JDI is working to transition to a business structure that can achieve earnings that are less influenced by conditions in the business environment. Since July 2015 the company's new management leadership team has been focused on reducing manufacturing costs and fixed costs and on lowering the break-even point. However, in light of the expected business environment, JDI’s capital investment strategy and other factors the company has determined that further strengthening of its business structure is necessary. By implementing structural reforms to reduce fixed costs and achieve more efficient use of resources JDI believes it can further lower its manufacturing costs and increase its earnings power. At the same time JDI is making changes to its business structure, including a redesign of its business portfolio.
2. Overview of structural reform
(1) Partial closure of front-end production (small-medium size liquid crystal panel manufacturing) lines in Japan
Among its four manufacturing sites in Japan JDI operates liquid crystal panel production lines that use mother glass substrates ranging from a relatively small G3.5 glass (size: 600mm x 720mm) up to a G6 glass (size: 1,500mm x 1,850mm), which is the largest glass in the industry used for LTPS TFT technology. As part of the structural reforms JDI will terminate production at two economically unproductive older generation manufacturing lines while retaining related property and equipment facilities.
(2) Restructuring of back-end production lines overseas In order to streamline its China-based back-end manufacturing operations JDI has been exploring the possibility of consolidating (including partial sale of) its China manufacturing subsidiaries. For the present an impairment loss will be recorded concerning assets that have been in operation at a low utilization rate. JDI will continue to explore options for consolidating its back-end production lines.
(3) Introduction of an early retirement support program In order to achieve an optimized company age structure and revitalize the organization JDI will introduce an early retirement support program aimed at Japan-based company employees age 45 and above who meet certain conditions. Employees who select early retirement using this program will receive a special retirement payment in addition to a retirement package under the company's regulations for retirement. Also re-employment assistance will be provided to those employees who request it.
3. Outlook
JDI estimates that the cost of the above-described discontinuance of front-end production lines and the recording of an impairment loss on back-end production assets will amount to approximately 14 billion yen, to be taken as an extraordinary loss in FY 2016. On the other hand these structural reforms are at present anticipated to deliver fixed-cost savings of around 17 billion yen annually (about 8 billion yen in FY 2016). These financial sums are based on information JDI currently has in hand but actual amounts may differ in accordance with continued careful inspection of cost issues.
JDI provides financial forecasts only for consolidated net sales and operating income for the full financial year because large foreign exchange losses or gains which may be generated by the evaluation of JDI’s monetary assets and liabilities denominated in foreign currencies as of the last day of each financial period may preclude accurate financial predictions. When consolidated ordinary income and net income estimates for FY 2015 that include the impact of the above mentioned extraordinary loss become available the company will disclose that information as soon as possible.
By undertaking the above-described structural reforms JDI is aiming to lower fixed costs and is continuing without interruption operating cost reductions already underway. The company is also pressing forward with business restructuring measures as early as possible and making additional efforts to create a strong earnings structure.
1. Reasons for structural reform
JDI operates in the small-medium display industry. This industry, in particular the market for the company's leading product area, displays for smartphones, is becoming increasingly competitive. In addition this market is characterized by seasonal demand, which leads to extreme earnings volatility on a financial quarterly basis.
Given this situation JDI is working to transition to a business structure that can achieve earnings that are less influenced by conditions in the business environment. Since July 2015 the company's new management leadership team has been focused on reducing manufacturing costs and fixed costs and on lowering the break-even point. However, in light of the expected business environment, JDI’s capital investment strategy and other factors the company has determined that further strengthening of its business structure is necessary. By implementing structural reforms to reduce fixed costs and achieve more efficient use of resources JDI believes it can further lower its manufacturing costs and increase its earnings power. At the same time JDI is making changes to its business structure, including a redesign of its business portfolio.
2. Overview of structural reform
(1) Partial closure of front-end production (small-medium size liquid crystal panel manufacturing) lines in Japan
Among its four manufacturing sites in Japan JDI operates liquid crystal panel production lines that use mother glass substrates ranging from a relatively small G3.5 glass (size: 600mm x 720mm) up to a G6 glass (size: 1,500mm x 1,850mm), which is the largest glass in the industry used for LTPS TFT technology. As part of the structural reforms JDI will terminate production at two economically unproductive older generation manufacturing lines while retaining related property and equipment facilities.
(2) Restructuring of back-end production lines overseas In order to streamline its China-based back-end manufacturing operations JDI has been exploring the possibility of consolidating (including partial sale of) its China manufacturing subsidiaries. For the present an impairment loss will be recorded concerning assets that have been in operation at a low utilization rate. JDI will continue to explore options for consolidating its back-end production lines.
(3) Introduction of an early retirement support program In order to achieve an optimized company age structure and revitalize the organization JDI will introduce an early retirement support program aimed at Japan-based company employees age 45 and above who meet certain conditions. Employees who select early retirement using this program will receive a special retirement payment in addition to a retirement package under the company's regulations for retirement. Also re-employment assistance will be provided to those employees who request it.
3. Outlook
JDI estimates that the cost of the above-described discontinuance of front-end production lines and the recording of an impairment loss on back-end production assets will amount to approximately 14 billion yen, to be taken as an extraordinary loss in FY 2016. On the other hand these structural reforms are at present anticipated to deliver fixed-cost savings of around 17 billion yen annually (about 8 billion yen in FY 2016). These financial sums are based on information JDI currently has in hand but actual amounts may differ in accordance with continued careful inspection of cost issues.
JDI provides financial forecasts only for consolidated net sales and operating income for the full financial year because large foreign exchange losses or gains which may be generated by the evaluation of JDI’s monetary assets and liabilities denominated in foreign currencies as of the last day of each financial period may preclude accurate financial predictions. When consolidated ordinary income and net income estimates for FY 2015 that include the impact of the above mentioned extraordinary loss become available the company will disclose that information as soon as possible.
By undertaking the above-described structural reforms JDI is aiming to lower fixed costs and is continuing without interruption operating cost reductions already underway. The company is also pressing forward with business restructuring measures as early as possible and making additional efforts to create a strong earnings structure.
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